Saving For Your Future
To help people save more for their retirement, all employers are now required by law to provide a workplace pension scheme for certain staff and pay money into it.
All contractors employed by us under our umbrella PAYE model are required to be enrolled into our pension scheme as long as the following criteria is met:
- They earn over £192 per week (or £833 per month)
- They are aged 22 or over and
- They are under state pension age.
You can opt out of the pension scheme if you want to, but if you choose to remain you will have your own personal pension when you retire. This pension will still belong to you, even if you decide to leave us in the future.
As your employer, we will enrol you into our pension scheme provided by Options Workplace Pension. Once enrolled you will be contacted by Options Workplace Pension providing you with your pension account and policy information.
The main benefit to you asides from saving for your future is that you can use your pension as salary sacrifice to contribute pre-taxed income to your pension. This means that you can pay a percentage of your salary into your pension, rather than paying employers NICs, employees NICs and income tax on the full amount.
What Is Pension Tax Relief?
When you save into a pension, it is usual that the government gives you a top up as a way of encouraging you to save for your future. This top-up comes in the form of tax relief rather than actual money.
Tax relief is available on your pension contributions at the highest rate of income tax that you pay. So, for non-Scottish taxpayers, this means:
- Non-taxpayers (i.e. people who earn under the personal allowance) get no pension tax relief – unless they are in a ‘relief at source’ scheme
- Basic-rate taxpayers get 20% pension tax relief
- Higher-rate taxpayers get 40% pension tax relief
- Additional-rate taxpayers get 45% pension tax relief
To illustrate:
You are a higher rate of tax payer, and thus pay 40% PAYE income tax.
You earn £100, which you can take as salary via us as your Umbrella Payroll company, or you can pay into your pension as salary sacrifice.
By taking the £100 as salary via us, your umbrella company, the below deductions would be taken:
- £14.00 will be deducted for employers and employees NI, which leaves a balance of £86.00.
- A further £35.00 will be deducted as higher rate PAYE income tax.
- This means your take home will be £51.00.
If you choose to pay the £100.00 into your pension, then the whole £100.00 would go into your pension fund.
What happens next?
Once enrolled you will receive a welcome pack from the People’s Partnership and you will be able to register and login into your pension account.
You will have access to an array of pension services, including the ability to opt out if you so wish.
Once you are enrolled into the pension, we will immediately deduct 8% of your total earnings, which will be paid directly into your pension. You also have the option to increase this amount if you so wish. This deduction will be clearly detailed on your payslips.
What happens if you don’t want to pay into a pension?
Due to our legal requirement to enrol those who qualify into our pension scheme, we will be deducting the first 8% of your income, once enrolment is confirmed. There is no way for us to avoid this.
If you choose to stay in the scheme we will continue to make your deductions as set out above to grow your fund.
If you choose to opt out, we will receive notification from the pension provider informing that you have decided to do this. We will then ensure that no further deductions are made, and if you opted-out within the first month then we will ensure that the initial 8% deduction is returned to you, which will be detailed on a later payslip.
If you have any queries regarding your pension, login, and services, then please contact the pension provider directly using the details provided within your welcome pack/email.
If you have any queries relating to the processes performed by Payments Pro Ltd as detailed above, then please contact your Account Manager.
What About Salary Sacrifice?
Salary sacrifice basically involves you paying a portion of your earnings each month or week in return for a non-cash benefit from your employer. In this instance we will be talking about pension contributions
The arrangement is set up and agreed between the employer and the employee. An agreed amount of the workers pay is deducted prior to the worker receiving their wage, and the corresponding sum is paid into the pension scheme.
This deduction reduces the workers salary and, because the income is lower, the amount of tax and national insurance that is paid.
Many umbrella’s now allow workers to pay into their own private pension but this does not bypass enrolment into the company pension scheme. The worker will still need to opt-out of the auto-enrolment scheme if they only wish to use their own scheme.
Using Salary Sacrifice, the worker has the freedom to choose their own pension scheme so as to have more control over the options offered by the provider.
Annual Allowance
For tax year 2023 to 2024, an employee can contribute up to £60,000.00 to ensure that they receive tax relief on their annual earnings. The amount contributed is also dependant on National Minimum Wage (NMW) limits which will ensure that the workers annual wage does not fall below NMW.
Your annual allowance applies to all of your private pensions, if you have more than one. This includes the total amount paid in to a defined contribution scheme in a tax year by you or anyone else (for example, your employer)
If you use all of your annual allowance for the current tax year you might be able to carry over any annual allowance you did not use from the previous 3 tax years.
How to use Salary Sacrifice with Payments Pro
If you have your own private pension and would like to pay a portion of your wage into it then you will need to contact your provider and let them know that your employer will be facilitating payments from your wage. The should then provide you with the details that will enable us to set-up the deduction. This should consist of an account number, sort code and a reference number that will ensure the contribution is associated with your account.
Once set up we will make the agreed contribution into your pension each time that you are paid. Please note that we charge a £1 processing fee each time we make the contribution.
Payments Pro have partnered with Options Workplace Pension to ensure that all of our contractors are provided with the opportunity to save with one of the UK’s leading pension providers.
Options Workplace Pension use an integrated investment approach to help its members save for the future. As well as this, members can also use a more hands-on approach with their pension investment strategy by investing the contributions in a mix of funds that take appropriate levels of risk. Members may also choose a mix of investments at any time.
Options Workplace Pension has a range of investment funds, which are typically a mixture of shares from around the world, bonds and gilts. They will invest their members’ money across the different funds – depending on the options you choose and how close you are to retirement.
For more information you can visit Options Workplace Pension or view the handy guides below.